Renewable electricity is already less expensive around the world on average than fossil fuels, according to an analysis released last week by the UK-based Carbon Tracker Initiative.
“This suggests that the tide has turned, and is borne out by the growing number of locations where unsubsidized renewables are being built,” Carbon Tracker states. “It also shows why any investors basing their investment decisions on coal and gas continuing to be the cheapest source of electricity could be deeply misguided.”
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By 2020, the introduction of affordable renewables under a 2°C climate scenario will mean that coal plants are only used 42% of the time, and natural gas facilities will be idle all but 31% of the time, states the report, titled End of the road for coal and gas?. But plant operators will still have operating costs to cover, meaning that electricity costs will rise by 1.6¢/kWh for coal and 3.8¢/kWh for gas.
Meanwhile, Carbon Tracker concludes, increased use of solar and wind will boost their capacity factors 20 and 40%, respectively, cutting their costs by 0.6¢ and 1.5¢ per kilowatt-hour.
“This analysis explains why renewables are already the cheapest option in a number of markets,” said co-author Paul Dowling. “The trend is only likely to spread as the growth of renewables undermines the economics of fossil fuels.”
“Markets are having to deal with integrating variable renewables on a growing scale,” added co-author Matt Gray. “Rather than continue debating whether this energy transition is already occurring, it is time to focus on developing the opportunities in energy storage and demand management that can smooth the process.”
All of which means that “policy-makers and investors really need to question outdated assumptions on technology costs that do not factor in the direction of travel post-Paris,” said Carbon Tracker Research Director James Leaton. “Planning for business-as-usual load factors and lifetimes for new coal and gas plants is a recipe for stranded assets.”
“Importantly, the LCOEs [levelized cost of electricity figures] for wind and solar in the 2016 updated scenario are not dependent on our carbon pricing assumptions to come out lower than coal and gas,” Carbon Tracker observes. Based on the average of multiple cost scenarios, “even very low fuel prices [for coal and natural gas] would not tip the advantage back to fossil fuels.”
Climate Home’s coverage points to the gap between developers’ expectation that a typical coal plant will operate at an 80% capacity factor and global average utilization of 59% in 2013. For gas, the figures were 60% and 38%. “It makes each unit of power generated look more expensive, as the capital cost has to be recovered over a shorter time” in operation, explains correspondent Megan Darby. “.